In a Time of Deficits, Florida Ponders The Unpopular Idea of an Income Tax

By LARRY ROHTER,

Published: December 10, 1991

TALLAHASSEE, Fla., Dec. 6—
In a state that owes its rapid growth almost as much to its image as a tax haven as to its warm weather, officials are trying to avoid something that most of Florida's 13.5 million residents are dead set against: a personal income tax.

The Florida Legislature is to convene for a special session on Tuesday, and its mission will be to slice $622 million in spending from the state's $29.5 billion budget to comply with the state constitution's requirement of a balanced budget.

But even when those cuts are made, Florida's tax structure will probably still be unable to meet the state's ever-growing needs, and Gov. Lawton Chiles and other state officials know it.

"The reality is that it just won't work any more," T. K. Wetherell, a Daytona Beach Democrat who is House Speaker, said in an interview here. "Something has to give. You can't have a tax haven and at the same time tell people you're going to provide them with a utopia down here. You're going to have to do things that affect the quality of life, and that doesn't mean only palm trees and sunrises. It means cutting medical care and schools, too."

Or it means enacting new taxes. But politicans in Tallahassee are well aware of what happened when New Jersey raised several taxes and when an income tax was put in place in Connecticut: New Jerseyans voted out many incumbents and Connecticut voters are threatening to do the same.

Florida, whose population grew by nearly 50 percent during the 1980's, is now one of only seven states with no form personal income tax. Instead, it has relied on a sales tax, now at 6 percent, for about two thirds of its general revenue. Most of the rest comes from licenses, corporate income taxes, and levies on alcohol, cigarettes, gasoline and betting.

As long as residents and visitors were able to spend generously, Florida was able to get by on a tax system developed more than 50 years ago, when the state was the least-populated in the South. But the deepening economic recession, which has brought a slackening of tourism and slowed the purchase of consumer goods, has forced officials of what is now the nation's fourth most-populous state to scale back their revenue collection estimates by 5 percent this year.

Doug Cook, the state's Budget Director, estimates that the budget deficit for the 1992-93 fiscal year, which starts July 1, could be $1.7 billion. That gap is likely to widen: new residents continue to flock to Florida at a rate of nearly 1,000 a day, and many are elderly retirees, immigrants from Latin America and other groups that require more social services than the rest of the population.

"Unlike New York and California, our service level is so low to begin with, and our growth so high, that even if we hold even, we've got a hell of a problem," Mr. Cook said. Large Need for Services

Florida has the highest percentage of people 60 years old or older of any state, more than one of every five residents. It also has a rapidly growing population that is 18 or younger, which in recent years was reflected in annual increases of 100,000 or more in school enrollments, requiring the state to pay for new classrooms and teachers.

Per capita, Florida residents pay from 15 to 20 percent less in state taxes than the nationwide average, according to Federal Government statistics. As Mr. Wetherell put it, "not only do we not have an income tax, we don't have much of an inheritance tax, the real estate taxes are half what they are in Northeastern states," and there is an exemption from taxes on the first $25,000 of the value of a home.

But Floridians still appear to expect most of the same services as residents of other states. Governor Chiles's "reality budget," which calls for teacher layoffs, cutbacks in health care programs and delays in opening new prisons, has drawn protests from advocacy groups and voters who supported the Democrat in last year's election.

One obvious way for the state to increase revenued for such programs would be to institute a personal income tax, which economists say could immediately generate more than $3 billion a year if such a tax were no more than the national average, 2.4 percent. But that would require first a cumbersome constitutional amendment and then a vote by the Legislature, which is also dominated by Democrats.

As both the Governor and the Legislature know, there is little public support for such a move. The Florida Opinion Poll, published in June by Florida newspapers owned by The New York Times Company, found that while 74 percent of Florida voters think they will be paying a state income tax by the end of the decade, only 25 percent said they would vote for such a proposal.

"It's not in my plans now," Mr. Chiles said of a state income tax during an interview at the Capitol, his pet dog asleep on a sofa at his side. "I'm not going to waste my time with something that's not going to happen." Proposal on Exemptions

Instead, political leaders and business groups seem to favor eliminating or scaling back many of the exemptions to the sales tax, like those on groceries and medicine that deprive the state of more than $2.7 billion in revenue each year. There has also been talk of instituting some sort of value-added tax, which would impose a levy on each stage of production and sale of products, and some conservative analysts have suggested fiscal restraint as the solution to the budget deficit.

"We're really not in a crisis situation," said Randall G. Holcombe, an economics professor at Florida State University here. "The temporary problems we are facing now are due more to spending than to our tax structure. Taxes have been going up faster than income, but our problem is that spending is going up faster than taxes."

Mr. Chiles has repeatedly said he will veto any tax increase unless it is preceded by a thorough reorganization of the state government, involving the shrinking some state agencies and the combining of others. He said voters would accept new taxes only if "we can tell them they are getting their money's worth."

"I'm going to have one shot at this, and I don't want it to be a patch job," he said. "The long-term problem is that Florida is operating with both an antiquated delivery system and an antiquated revenue system. We need to reform that delivery system and then we want to look at major tax reforms."

The Governor favors a new system that relies more on local initiatives and eliminates overlapping programs.

Senator Gwen Margolis, a North Miami Beach Democrat who is president of the Senate, said she expected the tax and budget issues to dominate the Legislature's regular session, which begins in January. She, like Mr. Chiles, talked of a gradual effort to persuade voters to accept a more broadly based tax system.

"Since we have so many constitutional prohibitions, the entire issue is extremely difficult," she said. "People don't rise up and say 'tax me, tax me.' They have to be sold on the need for new taxes and shown that a major erosion of their life is happening."

Graphs: "Florida Contemplates Its Low-Tax Ways" shows percentages of sources of tax revenues, and the average amount of state taxes paid per full-time residents from '85-'89. (Source: Florida Tax Watch, U.S. Commerce Department)